You have your machine set up wrong. Typically, Z zero is the top of the part, and -Z is down into the part. When I load your code, it starts at the bottom and cuts up.
Since the code you posted is modified from code that I gave you, I guess I'll give you new code.
So, you start at 5,8, with the center at 5,6.5.
Your center will stay the same, but you want to start 1/8" in, so you start at 5,7.875.
G0 X5.000 Y7.875 Z0.500
G1 X5.000 Y7.875 Z0.000 F75
G3 X5.000 Y7.875 Z0.125 I0.000 J-1.375 F125
G3 X5.000 Y7.875 Z0.1250 I0.000 J-1.375
G0 X5.000 Y7.875 Z0.500
All together you do this. I added comments to help out.
G20 G40 G90 G91.1 (inch mode, comp off, absolute, incremental IJ)
G0 Z1.500
(rapid up 1.5inches above part)G0 X5.000 Y8.0 Z0.500
(rapid to start position, .5 above part)G1 X5.000 Y8.0 Z0.000 F75
(move down to surface of part)G3 X5.000 Y8.0 Z-0.125 I0.000 J-1.5 F125
(make one revolution helical cut, ending .125 down)G3 X5.000 Y8.0 Z-0.250 I0.000 J-1.5
(make another revolution helical cut, ending .25 down)G3 X5.000 Y8.0 Z-0.250 I0.000 J-1.5
(make one more revolution at z= -0.25, to release the part)G0 X5.000 Y8.0 Z0.500
(rapid up to .5 above part)G0 X5.000 Y7.875 Z0.500
(rapid to start of lip)G1 X5.000 Y7.875 Z0.000 F75
(move down to surface of part)G3 X5.000 Y7.875 Z-0.125 I0.000 J-1.375 F125
(make one revolution helical cut, ending .125 down)G3 X5.000 Y7.875 Z-0.1250 I0.000 J-1.375
(make one more revolution to give flat bottom)G0 X5.000 Y7.875 Z0.500
(retract to .5 above part)M30
(rewind)Again, you need to set up your machine so that +Z is up, and -Z is down.